How to Choose a Business Model: Cost, Time and Upside

Every online business model trades money, hours and potential differently. Pick the trade you can live with.

Most people pick a business model because it is trending. A better way is to pick it by what it costs you, how long it takes to work and how far it can go.

Every model makes a trade between those three things. None is free. The goal is to choose the trade that fits your money, your hours and your patience.

The three questions

Before you compare models, answer these honestly.

How much cash can you put in without stress? Not the most you could find. The amount you could lose and still sleep.

How many hours a week can you give it, for how long? Ten hours for two years is a different plan from forty hours for six months.

What does success look like? A steady income that replaces a salary, or something you could one day sell?

Hold on to your answers. Now look at the models.

Services: low cost, fast cash, capped upside

Freelancing, consulting and done for you work are the quickest way to earn online. You can start with skills you already have and very little money.

The market is large. Upwork's Freelance Forward 2023 study found that 64 million Americans freelanced that year, about 38% of the US workforce.

The trade is that income is tied to your hours. When you stop, the money stops. Marketplaces also take a cut: Fiverr's help center says sellers keep 80% of each order, meaning a 20% fee.

Services are a strong first model if you need cash soon. They are weaker if you want something that grows without you.

Ecommerce: higher cost, slower, flexible upside

Selling physical products means stock, shipping, returns and advertising. Platforms are cheap to open: Shopify's Basic plan is listed at $29 a month on annual billing. The real costs are inventory and customer acquisition.

Ben Francis started Gymshark in his parents' garage in Birmingham in 2012, at 19, while studying by day and working at Pizza Hut at night, according to the BBC. CNBC reported he used his Pizza Hut earnings to buy a sewing machine. He sewed, screen-printed and shipped products himself in the early days, according to Gymshark's official history.

That story shows both sides of the model. It can grow very large. It also asks for hands on work and money tied up in stock long before it pays back.

Every model makes a trade. The goal is to choose the one you can live with.

Digital products and education: medium cost, slow start, strong margins

Courses, templates, memberships and paid newsletters cost little to deliver once they are made. The hard part is building trust and an audience first.

Platforms are a real line item. Kajabi's published plans run from $179 to $499 a month on monthly billing. Cheaper tools exist, but you will still need email, a checkout and somewhere to host your content.

Pat Flynn is a well documented example. He has written that he was laid off from his job as an architect on June 17, 2008. He had built a site to help people pass an architecture exam, and Forbes reported in 2014 that he had made his first $3 million in passive income through his business. It did not happen overnight. His public income reports start in 2008.

This model suits people who can teach something specific and who are willing to spend months creating content before sales arrive.

Software: high time cost, slow, highest upside

Software takes the longest to build and has the widest range of outcomes. The upside is that recurring revenue is valued highly when you sell.

Acquire.com's January 2024 multiples report said SaaS startups sold on the platform at an average of 4.3 times trailing twelve month profit, with a range from 0.63 times to 34 times.

If you can code or can afford to pay someone who can, and you have time to wait, software has the highest ceiling. Most people underestimate the waiting.

Content sites: low cash, long time, sellable asset

A content site earns from ads, affiliate links or sponsorships. It costs little to run. It takes a long time to build traffic.

Its strength is that it can be sold. Empire Flippers, a broker for online businesses, reported that content sites sold at an average of 31.6 times monthly profit in 2020. That number moves with the market, but it shows these sites are treated as assets.

Putting it together

A rough way to compare:

• Need income in months, little cash: services.
• Have cash, like operations, want a brand: ecommerce.
• Have expertise and patience: digital products.
• Have technical skill and a long runway: software.
• Have time, little cash, want a sellable asset: content.

Many durable businesses combine two. A common path is to start with services to fund the bills, then build a product from what clients keep asking for.

Choose the trade, then commit

The worst choice is switching models every few months. Each one has a slow start, and quitting at the slow part means you pay the cost without reaching the upside.

Match the model to your answers on cash, hours and goals. Then give it long enough to work.

Sources

1. Upwork, "Freelance Forward 2023": https://investors.upwork.com/news-releases/news-release-details/upwork-study-finds-64-million-americans-freelanced-2023-adding
2. Fortune, "Millennials and Gen Zers helped gig economy reach new heights in 2023": https://fortune.com/2023/12/14/gig-economy-freelance-work-increases-millennials-gen-z-upwork/
3. Fiverr Help Center, "How Fiverr works for freelancers": https://help.fiverr.com/hc/en-us/articles/34069565843985-How-Fiverr-works-for-freelancers
4. Shopify Pricing: https://www.shopify.com/pricing
5. BBC News, "Gymshark: Ex-pizza delivery boy's sportswear firm worth over £1bn": https://www.bbc.co.uk/news/business-53781515
6. CNBC, "Gymshark CEO Ben Francis: From Pizza Hut, sewing kit to billionaire": https://www.cnbc.com/2023/05/26/gymshark-ceo-ben-francis-from-pizza-hut-sewing-kit-to-billionaire.html
7. Gymshark, "The Official Gymshark Story": https://www.gymshark.com/blog/article/the-official-gymshark-story
8. Kajabi Pricing: https://www.kajabi.com/pricing-new
9. Pat Flynn, About: https://patflynn.com/about/
10. Forbes, "How Pat Flynn Made His First $3 Million In Passive Income": https://www.forbes.com/sites/laurashin/2014/09/12/how-pat-flynn-made-his-first-3-million-in-passive-income/
11. Acquire.com, Biannual Multiples Report, January 2024: https://blog.acquire.com/wp-content/uploads/2024/01/Acquire-Biannual-Multiples-Report-Jan-2024.pdf
12. Empire Flippers, "How to Value a Website": https://empireflippers.com/how-to-value-a-website/